Last Updated on March 31, 2024 by Olga
To begin with, cryptocurrencies are considered the future of the global economy. Trading goods online using digital assets and blockchain sounds like a method that will eliminate the problem of using one or another national currency.
Thousands of people are now interested in investing. Therefore, it is important to be aware of the challenges of the new market. Let’s take a closer look at the main nuances of virtual currencies loaning. Naturally, the most successful digital currency is Bitcoin. However, even trading this cryptocurrency has pitfalls. Despite the popularity of BTC and some other altcoins, such as Litecoin, investing in crypto assets comes with serious risks or scams.
The cryptocurrency exchanges and loaning markets works around the clock
Bitcoin and other altcoins do not sleep. The digital currency market algorithms are operating around the clock, and therefore, technically, it cannot “open” or “close” the next trading day. As a result, one day when you sleep, the crypto market will run at breakneck speed. It doesn’t matter if you are in New York or London, Bitcoin users and crypto financial markets can make a profit 24/7
With this in mind, try not to check the price of your digital assets every second. This will destroy your productivity and replace it with worry. Instead, sit back and glance from time to time, keeping in mind the long-term perspective. After all, you are loaning, not day trading.
Volatility. You can quickly go bankrupt on this matter, so beginners need to focus on stable investment methods such as loans. Also, as cryptocurrencies have become a relatively new asset class, they do not yet have the same level of liquidity as traditional assets.
Hard forks
Every time an important digital currency announces a hard fork, some volatility is inevitable. We saw this with Bitcoin Cashback in 2017. Fortunately, such things are usually announced in advance, which gives coin holders enough time to prepare for the next price change. A derivative rule of thumb is not to trade during the fork: wait for the dust to settle and then decide what to do.
Excessive trading or loaning
Newbies may find it tempting to assume that the best way to make a profit is to make as many trades as possible. But trading more often does not mean you will make more money. No one wants to gamestop, isn’t it?
The best way to avoid long-term losses is to limit the number of trades you make per week. Usually, to get adequate profit, it is enough to carry out several transactions per week. If you continue to trade multiple times a day, you will quickly notice your portfolio inefficiencies, which only get worse during market downturns.
While it’s important to be conservative about the number of trades you take, you shouldn’t let this become a hard cap or a specific goal. Both that and another can change your decision and not for the better. The market is unstable, and your thought processes may be tough enough to take advantage of it. Look for a sweet spot by trading according to a wide range of recommendations, without fear of taking risks when you need to.
Psychology issues
Besides, there is also a psychological side to the issue. Traders suffer losses not only due to incorrect trading positions but also due to emotions. Very often, investors are faced with a sense of greed and fear of losing everything. Therefore, in some cases, traders enter trading positions too early, taking small gains or losses.
In addition, the desire to make a fortune on crypto in one day makes traders take too much risk. The fear of losing profits also plays a role here, but the loss of profit syndrome can still be traced.
Pump and dump communities
They are often gullible people who seek to get rich quickly with a handful of “puppeteers” pulling the strings. Communities often take the form of online chats, Telegram channels, or Discord chats with messages that promise members a “500% ROI” on their investment. You just need to follow the group’s signals to buy and sell assets. Unfortunately, the market usually crashes before the target price is reached, leaving poor investors with tons of worthless altcoins.
However, it’s not just retail investors who suffer from pump and dump schemes. Professionals can also become victims, with even more dire consequences. The risks increase significantly when you operate with large volumes. The fact that many of these systems seem pretty straightforward on paper makes them incredibly alluring. This is especially noticeable when you see a social media ad that features a 20-year-old boy with a brand new Bugatti. Just remember, “If everything looks too good to be true, it probably is.”
Protocol vulnerabilities
It is a common misconception that digital currencies are immune to cyberattacks. Nevertheless, as is usually the case: there is a way out, there would be a desire. Soon after the 2017/2018 boom. Several major crypto exchanges have been the target of criticism. And as the number of exchanges, brokers, and network updates continues to grow, we can only expect more security breaches.
The main takeaway from this is that even the most reliable and supposedly secure networks are not completely secure. Investors would be wise to take steps to protect their assets and personal data. Other than using cold digital wallets with private keys, there is no reliable way to protect your cryptocurrency from potential thieves. However, if you are opting for a public ledger, take your storage platform seriously.
Bad advice from mainstream media and random experts
Well, it may sound strange, but you shouldn’t just trust whoever you read or listen to on the Internet. Many of the so-called “investors” you find on Twitter and other social media platforms may turn out to be corporate accounts trying to convince traders to take action that is beneficial to them.
There are a lot of helpful people or investors with extensive experience in this field, who are ready to help newbies. However, it would be best if you were always very careful with who you are going to trust. Remember crypto is a zero-sum game. There is a buyer for every seller.
You should look for more detailed information yourself. Spend time on Twitter or Reddit, and read books and blogs written by people who are well versed in cryptocurrencies and don’t try to sell any get-rich-quick schemes.
Develop your logic and prudence, filter out useful information from incorrect words. You should always analyze and make your own decisions before listening to any “expert opinion” or any short-term story from an expert from the mainstream media that explains the latest Bitcoin or Ethereum price movement. In short, think for yourself!
Less legislative and government protection
Government and legislative support are the main regulators and the central authority that attract many investors or financial institutions. But there is also a downside to the coin. The central bank or government does not support digital currencies in the same way as fiat currencies. This is why there are problems with exchanges.
All digital currencies are stored in wallets, so they are not offered the same level of financial security. At the same time, they can act as a bank account. What does it mean? The government does not insure your cryptocurrency in the same way that the government provides money that is held in a bank.
If you know what you are getting yourself into when investing in cryptocurrency, you will be less at risk and worry. There is no guarantee that you will earn on your investment. However, many people make money investing in cryptocurrencies.
Thanks, CoinRabbit. Now I am scared
No worries! Every economist will say that here are always risks associated with any new type of investment or loaning. Digital assets can and in many cases should be part of your overall investment strategy. Look for well-known cryptocurrencies. As for new virtual currencies, there will always be questions about the legitimacy of a coin as it matures.
Cryptocurrencies have some nuances that prevent their mass adoption and implementation. Therefore, it is logical that experienced investors decided to ignore the new technology and not invest their hard-earned money in it. Yet we know that digital currencies and blockchain technology have their weight. They offer important advantages such as decentralization, transparency, and flexibility.
Loaning in cryptocurrency is an exciting experience. It opens up the opportunity for you to make good money. You can buy several coins for a few dollars and watch their value skyrocket to hundreds of dollars apiece in a short time. With this potential for success comes an equal potential for failure. Once you can avoid all the pitfalls outlined above, you will no longer be afraid of your loanings. Be aware of the volatility of the young financial market and act smart!
In the end, you’re making the crypto work for you by taking out a crypto loan. Provide it as collateral and discover all instant crypto loan options. See here how much you can get right now from USDT loans or USDC earnings!
